Binance crypto exchange recently started offering fractional tokenized shares of Tesla and Coinbase allowing customers to get access to traditional stock market shares from within the platform. However, this move could backfire as reports suggest the exchange might face the wrath of European regulators for offering equity.
European regulators are currently examining whether the world’s largest crypto exchange violated the securities laws and whether the tokenized stocks comply with rules governing transparency and corporate disclosures.
The Financial Conduct Authority of the United Kingdom in a recent press briefing said that it is in talks with the cryptocurrency exchange to determine whether the new tokenized stocks violated any regulations. The official statement read,
“We are working with the firm to understand the product, the regulations that may apply to it, and how it is marketed. Firms and their senior management teams are responsible for determining whether their products and services fall within the remit of the FCA”.
Binance Says Tokenized Stocks Do Not Qualify as Equity
The European security laws suggest if tokens are transferable, can be traded at a crypto exchange, and are equipped with economic entitlements like dividends or cash settlements, they represent securities and are subject to the obligation to publish a prospectus. However, Binance in its official statement cited that its newly launched stock tokens are a CM-Equity product that is compliant with the EU’s Mifid II markets rules and BaFin’s banking regulations. The exchange said,
Currently, users only buy and sell the tokens from and to CM-Equity AG, which does not require a prospectus,
The exchange went onto explain that its tokenized shares only track the price of the actual share and are not transferable and despite offering dividends, it is only settled in cryptocurrencies rather than cash, thus it does not qualify as equity. However, the exchange may face inquiry for not offering clarity regarding the tokens on the platform.